If you sell products to bodyshops, you’ll be familiar with the fact that many are less profitable than their owners would like. As a result, the typical reaction is to try and beat you down on the price of the products you sell.
In order to combat this tendency effectively, it is helpful to understand the realities of the bodyshop business and the challenges they face.
First and foremost for you must be the realization that, despite the customary interest in new techniques and technologies that may face the painters and pullers, the real challenges are in the front office. This is not entirely different from the mechanical repair garages that you likely also sell to. Generally the owners of both bodyshops and repair garages come from a technical background. They are technicians and tradespeople first, business owners second. The difference is that the demands for business acumen placed on the bodyshop are far more acute. They need to handle estimating procedures, insurance company restrictions and payment rates, environmental edicts and the customer, too. It all boils down to rising costs of doing business without much wiggle room to raise rates.
For example, according to the Bodyshop Magazine 8th Annual Canadian Autobody Survey, the average repair bill for bodyshops is $1,450. That’s actually $30 less than the 1995 average. And they have to work for that, too. If you were to calculate how many of the estimates a repair garage writes versus how many jobs it gets, you would probably get a relatively high percentage, perhaps in the 90% range. For bodyshops, with a very detailed estimating procedure and the need to dedicate time and skills to getting this right, only about two thirds turn into actual work.
“We have a whole network of independent customers. These guys are striving to survive and increase their own efficiency,” says Tony Reitz, manager for OEM refinish for PPG Canada. “They don’t get as many of the first calls as dealerships and they’re surviving in an environment where if the dealership doesn’t have a bodyshop they need to enter into a reciprocal agreement. A lot of dealerships are referring that business out. Quite frankly, the OE offices want to have a sense of directing the level of quality of that repair. They need to qualify or meet certain criteria.
“I truly believe it’s going to move to that system where the OEMs are going to try to continually influence the market. In Europe, they have much more influence. The other extreme is the U.S., where everything the OEMs do is viewed with suspicion. We’re a bit in the middle. Along with all the other pressures, this is just one more.” Reitz says that while it hasn’t necessarily come to this stage yet, he sees the trend. “I do believe (the OEMs) have programs to initiate going toward that, but there is some work to do yet. We know the independents don’t have the time to do all that paperwork. But the OEMs are more prone to develop written procedures.
“In terms of our own bodyshop management people, it’s crucial. The guys falling by the wayside are the ones that just want to get their hands on the car. The guys surviving are effective administrators and business people.”
According to the Bodyshop Magazine survey, there is also a limited amount of attention to the tools of running a business. While 70% of independent bodyshops make some use of a computer, less than two-thirds combine estimating and “business management.” (This compares to about 83% of jobbers who are computerized.)
This sounds relatively encouraging on one level, till you realize that only 55% of all shops, dealerships included, perform job costing. Job costing is how you determine the profitability of any repair job by comparing the revenue of the sale with the fixed and variable costs of actually doing the job. Put simply, remarkably few bodyshops actually know where their costs of running business are. And this is where the opportunity is for jobbers and their staff.
“We’re not selling product like in the old days,” says Daniel Boivin, a business development representative with DuPont Canada. A veteran of the refinish industry who still runs his own collision repair and glass replacement businesses, Boivin says that most shops have not done a formal budget. So, it’s no wonder that they look on with some amazement when he can produce a document that shows where their costs should be with only their gross sales to work from.
For example, metal labor should be about 30% of total sales, paint labor about 20%. Parts should be about 40% of gross revenue. Materials, including paint, should be about 7.5% of a shop’s total sales. On the cost side, the paint would be about 7% total expenses. That could be up to 10% with other materials used, but in either case, it should be relatively obvious that cutting the price of materials, even drastically, would have only a limited effect on overall profitability.
“About 70% of shops know something about business management,” says Boivin’s colleague Mario Tremblay. They may be skilled at estimating, or shop planning, or other aspects, he says, but seldom can provide a well-rounded approach. And very few have a formalized budget to reveal where they spend the money they earn. If they did, they might have a different viewpoint.
“If you ask a shop owner what the true costs of an employee are, most will tell you what their wage or hourly rate is,” says Tremblay, adding that there is more to it than that.
There are, of course, training offerings from virtually every paint supplier to help improve the business acumen of the bodyshop owner, and you should be aware of what is available from your suppliers in order to offer it to both the owner and any new managers that may have risen up through the shop ranks.
In general, though, there is much more to be gained through increasing efficiency of repairs than in the price of paint, parts and supplies. There are two components to this: labor efficiency and parts intensity.
Labor efficiency is a relatively easy concept to fathom. The fewer minutes a painter is waiting between stages means less labor cost, and this fact applies to every stage of an repair. Products and tools which help speed up the repair are an important part of this–and one area where you can certainly help with by keeping on top of new products and techniques–but the way a shop is organized is another.
Parts intensification, on the other hand, may be more difficult for some personnel to accept. “A very skilled craftsman can get anything to look good,” says Reitz. “But sometimes you can get a more efficient and profitable repair by just replacing the part.” While that approach may put less emphasis on some collision repair skills, when it’s a judgement call between repair and replace, Reitz says that the latter will often provide a more profitable result.
Current benchmarks put net profit from bodyshop operations at about 3% to 5%. It’s a tight business in an increasingly tight market.
New products, tools and repair procedures are important parts of your offering to the bodyshop customer. Equally important, however, is your understanding of how they fit into the customer’s financial picture, and where the imperatives lie for the bodyshop business owner.
The 8th Annual Canadian Autobody Survey, covering a wide variety of business aspects in fine detail, is available from the Southam Automotive Group. Request information on obtaining the survey by fax at (416) 442-2221 or via e-mail to email@example.com.